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TMI Blog2013 (9) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... ity or disallowance of deductions under sections 32(1)(iia) and deduction u/s 80IB . The order of the Assessing Officer is a non-speaking one and is silent on these aspects. Thus, it can be said that the order of the Assessing Officer is erroneous insofar as it is prejudicial to the interest of revenue - CIT's action in exercising jurisdiction u/s. 263 of the Act is upheld – Decided against the Assessee. Maintenance of separate books of accounts for deduction u/s 80IB - Allowability of deduction u/s. 80IB(7B) of the Income Tax Act with reference to profits and gains of convention centre – Held that:- Assessee had maintained books of account in regular course of business which had been accepted by the Department and no defect has been pointed out in the books of account containing the details of income and expenditure which are supported by vouchers and other documents. The method of accounting followed by the assessee has also been accepted by the Department. The assessee submitted that it has produced books of account and vouchers for verification before the Assessing Officer and after verifying the same the Assessing Officer granted deduction u/s. 80IB(7B). Even if separate bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the valuation given to the bank. Merely relying upon the valuation report, it cannot be presumed that the assessee has made unexplained investment when there is no denying of the fact that a common practice of inflating the stock is followed in the business circle for availing loan from bank – Decided in favor of Assessee. - ITA No.1254/Hyd/2011 & ITA No.1872/Hyd/2012 - - - Dated:- 28-3-2013 - Chandra Poojari and Saktijit Dey, JJ. For the Appellant : Sri Mohd Afzal For the Respondent : Sri M Ravindra Sai ORDER:- Per: Chandra Poojari: ITA No. 1254/Hyd/2011 by the assessee is directed against the order of the CIT-IV, Hyderabad dated 28.3.2011 passed u/s. 263 of the Act and ITA No. 1872/Hyd/2012 by the assessee is directed against the order of the CIT(A)-V, Hyderabad dated 18.10.2012 for assessment year 2006-07 which is emanated from consequential order passed by the Assessing Officer with reference to the CIT order u/s. 263 of the Act. 2. First we will take up the appeal in ITA No. 1254/Hyd/2011. Brief facts of the case are that the assessee filed return of income for A.Y. 2006-07 on 29.11.2006 declaring total income of Rs. 1,90,39,868. Assessment was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as such, audit reports, etc., therefore, the order of the Commissioner needs to be struck down. (iv) The learned CIT erred in determining the closing stock at Rs. 31.84 crores as against the closing stock of Rs. 16.77 crores admitted and further erred in directing the Assessing Officer, to bring to tax the difference between Rs. 31.84 crores and Rs. 16.77 crores, amounting to Rs. 15.06 crores to tax. (v) The opinion of the learned CIT in respect of valuation of closing stock is against the established principles of the accountancy that "the stock should be valued either at the market value or at cost price, whichever is lower", therefore, erroneous. 5. The learned AR submitted that the assessee is in the business of development of properties and also running of convention centre. The assessee claimed depreciation and additional depreciation on the assets of convention centre. This convention centre is equipped with modern machineries for producing/processing food items in a quick and hygienic manner. The activity of the assessee of producing food items from the ingredients instantly and hygienically is to be considered as production within the meaning of section 32[1] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onouncements and also to purchase peace with the Department, the assessee agreed for the disallowance of the additional depreciation claimed u/s 32[1][iia] of the IT Act. This action of the assessee does not amount to accepting the view of Commissioner, that the AO's order is erroneous and prejudicial to the interest of the Revenue. 6. The AR submitted that the claim of the assessee, being in the business of building, owning and operating conventional centre, in respect of deduction of u/s 80IB(7B) is a valid claim. The assessee has satisfied all the conditions laid down in the section 80IB(7B) read with rule 18DC and Form No. 10CCBB was submitted as prescribed. He drew our attention to the relevant provisions of the Act. 7. The AR submitted that the assessee has fulfilled all the conditions laid in 80IB[7B] of the IT Act including filing of form No. 1OCCB duly signed and verified by the an Accountant as defined in subsection (2) of section 288, certifying the deduction has been correctly claimed. The convention centre has also satisfied the conditions mentioned in Rule 18DC of the IT Rules. After examining all the transactions recorded in the concerned documents with reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The powers of the Commissioner are very wide in respect of proceedings of 263 for setting aside the AO.'s order, but, it is respectfully submitted that the powers are not so wide to call for the books of accounts and vouchers with an intention of making rowing enquiries. In the case of Bongaigaon Refinery Petrochemicals Ltd Vs. Union of India [2006] 287 ITR 120 [Gau], the order of the CIT was held to be bad in law for want of jurisdiction and also against material on record, where the assessment order giving relief u/s 80HH and 801 was claimed as provided by law and accepted by the AO after verifying the conditions of the claim. The AR submitted that the Ld. Commissioner has no material on record to assume the jurisdiction u/s 263 except assuming that the assessee has not maintained separate books of accounts for convention centre. 9. The AR submitted that during the course of asst. proceedings before the AO, the assessee submitted the details of bank accounts and loans obtained from various banks by giving guarantee to the bankers, including fixed assets of the company including lands, the Company has obtained Cash credit of Rs. 1.5 Crores, Term Loan of Rs. 20 Crores from Andh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Opening work in progress 9,16,57,435 Cost of land purchased during the year 3,15,14,701 Development expenses 15,11,80,393 Total 27,43,52,529 Less: Cost of sales 11,52,68,009 Closing work progress 15,90,84,520 11. The closing stock of convention centre and closing work-inprogress aggregating to Rs. 16,41,67,087/- [Rs. 15,90,84,520 + Rs. 50,82,567] was shown in the balance sheet as closing stock. However, after perusing the material on record such as obtaining loan from bank and valuation made by the bankers for granting the loan, the Ld. Commissioner re-worked the closing stock of the assessee company by substituting the valuation made by the bankers, which is as under: Total value of stock in trade - Rs.60,50,00,000 Less Sales Income from housing - Rs. 14,89,00,937 Income from resorts - Rs. 13,77,37,821 Rs.28,66,38,758 Closing stock as per Bank value Rs.31,83,61,242 12. The AR submitted that on the basis of above working the Ld. Commissioner assumed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntants of India has formulated an accounting standard regarding valuation of the closing stock (AS-2). Para 7 of the said standard reads as under: "Inventories are held in the expectation of deriving revenue directly or indirectly from their sale or use in order to determine the results of business for a given period it is necessary to carry forward the cost related to inventories until the inventories are sold or consumed. However, if there is no reasonable expectation that net realisable value would cover the cost incurred (as a result, for example of deterioration, obsolescence or change in demand) it is necessary that cost which cannot be recovered should be charged against the revenue of the current period. Therefore, inventories are normally stated at lower of the historical cost and net realisable value." It is clear from the above that the accounting practice recognizes the method of cost or market price (net realisable value) whichever is lower for valuing the stock-in-trade, taking into account the anticipated loss, if any, due to fall in the market price of the goods on account of deterioration, obsolescence or change in demand. Further, it was held in Asher Textiles Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment was completed u/s 143[3] of the IT Act, here also method of valuation of closing stock has been accepted and deduction u/s 80IB[7B] was allowed on the income of convention centre by disallowing a part of it on estimated basis by the same Assessing Officer, who has completed assessment for the subject asst. year u/s 143[3]. He drew our attention to the assessment order. According to AR, without examining the satisfaction of the section/rule and material submitted during the course of original assessment, the learned Assessing Officer simply followed the direction of Ld. Commissioner for making disallowances in the reassessment proceedings. Therefore, it is respectfully submitted that the Reassessment Order of the Assessing Officer deserves to be cancelled. He pleaded the Tribunal to restore the value of the closing stock as admitted in the Profit Loss Account and Balance Sheet filed along with the return of income. 16. The learned DR relied on the order of the CIT. 17. We have heard both the parties and perused the material on record. Regarding invoking of provisions of section 263 of the Incometax Act, 1961, in our opinion, the CIT can suo moto invoked the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation claimed by the assessee on plant and machinery u/s. 32(1)(iia) of the Act. The assessee has not challenged this issue before the CIT. Now, the assessee cannot reargue the issue before us after conceding before the CIT. To that extent the CIT's order is confirmed. 19. Now coming to the allowability of deduction u/s. 80IB(7B) of the Act with reference to profits and gains of convention centre, the CIT was of the opinion that the assessee has not maintained separate books of account for the convention centre and directed the Assessing Officer to withdraw the deduction already granted to the assessee. In our opinion, in the instant case the assessee had maintained books of account in regular course of business which had been accepted by the Department and no defect has been pointed out in the books of account containing the details of income and expenditure which are supported by vouchers and other documents. The method of accounting followed by the assessee has also been accepted by the Department. The assessee submitted that it has produced books of account and vouchers for verification before the Assessing Officer and after verifying the same the Assessing Officer grante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowing the expenditure in question has to be seen; that if there was an enquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under sec. 263 merely because he has a different opinion in the matter, that it is only in cases of lack of inquiry that such a course of action would be open; that an assessment order made by the Income Tax Officer cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately; there must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation, as lesser tax than what was just, has been imposed. (c) The power of the Commissioner under sec. 263(1) is not limited only to the material which was available before the Assessing Officer and, in order to protect the interest of the Revenue, the Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ice Cold Storage (9 TTJ 537), IT vs. Praveenchandra Giridharilal (63 TTJ 357); ACIT vs. Radhey Shyam Bansal (68 TTJ 136) (Rajkot) 24. This view of ours is also fortified by the decision of co-ordinate bench of this Tribunal in case of M/s. Sree Taraka Jewellers vts. ITO (ITA No. 1007/Hyd/2011 dated 10.5.2012 and Sri J. Venkata Subba Rao (ITA No. 731/Hyd/2010 dated 18.1.2013). 25. In the result, ITA No. 1254/Hyd/2011 is partly allowed. 26. Coming to ITA No. 1872/Hyd/2012 which emanates from the consequential order passed by the Assessing Officer while giving effect to the order u/s. 263 of the Act passed by the CIT. Since the order u/s. 263 has been decided upon by us in ITA No. 1254/Hyd/2011 wherein we have confirmed action of the CIT invoking jurisdiction u/s. 263 of the Act, however, we have modified order of the CIT to certain extent, being so, the consequential order passed against 263 order becomes infructuous. As such the Assessing Officer is now required to pass a fresh order in conformity to our directions in ITA No. 1254/Hyd/2011. As a result, ITA No. 1872/Hyd/2011 is dismissed as infructuous. 27. In the result, ITA No. 1254/Hyd/2011 is partly allowed and ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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